Question 1

Sole Trader

Accepted Answer

If you're an individual running a business, you're considered a sole trader. It's the most straightforward and cost-effective way to operate a business. As a sole trader, you're the only owner and have complete control over your business. You're also legally responsible for all aspects of the business, including any debts or losses incurred while running it. Although you're able to hire employees, you cannot hire yourself. As the sole trader, you're responsible for ensuring your workers receive their superannuation, also known as a super guarantee. While you're not required to pay a super guarantee for yourself, you can choose to contribute personally to your superannuation fund to save for retirement.

Question 2

Partnership

Accepted Answer

A partnership refers to a group or association of individuals who jointly operate a business and share the profits or losses from the business among themselves. While a written partnership agreement is not mandatory, it can be helpful in avoiding misunderstandings and disputes regarding each partner's contribution to the partnership, outlining how business income and losses are to be distributed among partners (whether equally or not), and defining how the business is to be managed. In the absence of a written agreement, partners share income and losses equally. It's worth noting that the partners in a partnership are not regarded as employees of the partnership, although they do have the authority to hire other workers. It is also the partners' responsibility to manage their superannuation, whereas the partnership is required to pay super for its employees.

Question 3

Company

Accepted Answer

A company is a separate legal entity with its own tax and superannuation obligations. It is run by directors and owned by shareholders. The income and assets of a company are owned by the company itself, not by its shareholders. If you use the company's money and assets for personal purposes, there may be tax consequences. A company can pay dividends to its shareholders, and these dividends may come with franking credits that provide a credit for tax already paid by the company on its profits. Although a company provides some asset protection, its directors can be held liable for their actions and certain tax and superannuation debts under the director penalties rules. Before being appointed as a director of a company, all directors must verify their identity and apply for a director identification number. The Australian Securities and Investments Commission (ASIC) is responsible for regulating companies. However, companies have higher set-up and administration costs than other business structures and must comply with additional reporting requirements.

Question 4

Trust

Accepted Answer

A trust is a legal arrangement where a person or entity holds and manages property for the benefit of others, known as beneficiaries. When a trust is created for a business, it typically includes a trust deed that outlines the trustees' powers and the beneficiaries' interests in the trust. The trustee is responsible for managing the trust's tax affairs and can be either an individual or a company. Generally, the trust's net income is distributed to its beneficiaries.